Campaign Spending Commission

Campaign Spending Commission
Leiopapa A Kamehameha Building, Room 204
February 14, 2018
10:00 a.m.

Commissioners Present
Bryan Luke, Kenneth Goodenow, Gregory Shoda, Stanley Lum, Maryellen Markley, Ph.D.

Commissioners Absent
None

Staff Present
Kristin Izumi-Nitao, Tony Baldomero, Gary Kam, Jessica Richey
Deputy Attorney General Valri Kunimoto
Deputy Attorney General Stacie Nakamura
Deputy Attorney General Deirdre Marie-Iha

Call to Order
Chair Luke called the meeting to order at 10:00 a.m.

Consideration and Approval of Minutes of Meeting on 12/13/17
Time:  10:00 a.m.
Chair Luke asked for comments or changes to the minutes.  There were none.

Chair Luke called for a motion to approve the minutes.

Time:  10:00 a.m.

Vice Chair Goodenow moved to approve the minutes of the 12/13/17 meeting.  Motion seconded by Commissioner Shoda.  Motion carried (3-0) (Commissioner Lum and Commissioner Markley abstained since they did not attend the 12/13/17 Commission meeting).

New Business
*Welcome and Introduction of New Commissioners and the Reappointment of Commissioner Gregory Shoda
Time:  10:01 a.m.

Executive Director Izumi-Nitao reported that Governor Ige reappointed Commissioner Gregory Shoda for a term to expire on 6/30/20.  Governor Ige did not reappoint Commissioner Adrienne Yoshihara and replaced Commissioner Eldon Ching.

Taking over for Commissioner Eldon Ching’s remaining term to expire on 6/30/20 will be Stanley Lum.  Stanley Lum is a graduate of Kamehameha Schools, the University of Hawaii, and Southwestern Seminary.  Prior to retiring from the Armed Services YMCA as Executive Director, he served as Assistant Headmaster and Director of Development at Le Jardin Academy and as Vice President for Financial Development at Hawaii Baptist Academy.  He is a founding board member of the Missing Child Center of Hawaii and volunteers at the Ronald McDonald House Charities and Sony Open.

Taking over for Commissioner Adrienne Yoshihara’s remaining term to expire on 6/30/21 will be Maryellen Markley, Ph.D..  Dr. Maryellen Markley is President of First Impressions, Inc., providing nonprofit strategic planning, board training, and grant writing for charities in Hawaii for over 25 years.  Prior to that, she worked on Capitol Hill in Washington D.C. writing health care legislation, including portions of the Americans with Disabilities Act and the Orphan Drug Act.  Maryellen currently volunteers on the Board for the Hawaii Disability Rights Center, and the Hawaii Professional Firefighters’ Foundation, and has served in a similar capacity for more than twenty-five other nonprofits in Hawaii since 1995.  Maryellen attended the American University in Washington, D.C., and Honolulu University; and has earned an MBA, and a doctorate in social psychology.

Executive Director Izumi-Nitao reported that both of the new commissioners received an orientation at the Commission’s office on 2/5/18 and were administered the oath of office.  A press release was issued on 2/5/18 regarding the reappointment of Commissioner Shoda as well as the appointment of Commissioner Lum and Commissioner Markley.

Old Business
*Docket No. 18-02 – In Re the Matter of Alan Arakawa, Ann R. Arakawa, Anthony T. Arakaki, and Friends of Alan Arakawa
Time:  10:03 a.m.

Chair Luke disclosed that his father had retained Mr. David Minkin, Esq., for personal business in the past, that his father disclosed this to him after the Commission’s December meeting, that this relationship does not influence nor affect him, and that he can be fair and impartial in this case.  There were no objections to Chair Luke’s participation in presiding over this matter.

General Counsel Kam reported that there are eight authorized uses of campaign funds:

• Directly related to a candidate’s campaign;
• Mixed benefit;
• Donations to community/charitable organizations;
• Donations to public schools or public libraries;
• Award scholarships to full-time students;
• Two tickets to another candidate’s fundraiser;
• Contribution to a candidate’s political party; and
• Pay for ordinary and necessary expenses (for elected officials).

General Counsel Kam reported that staff began investigating this case when staff noticed that Respondents reported a significant number of payments to charitable or community organizations, as well as payments that benefited Mayor Arakawa’s softball team.  For the period from 11/5/14 through 12/31/16, Respondents made 57 payments to 41 charitable/community organizations.  All of the payments were reported as advertising that was directly related to the candidate’s campaign and none were reported as being a charitable/community donation.

General Counsel Kam stated that the limitations on donations to charitable organizations are in place because campaign funds that are raised through contributions from the public are not the personal funds of the candidate.  During the course of the investigation, the parties agreed to bifurcate the softball expenses from the payments made to charitable organizations and the complaint about softball expenses had been heard separately by the Commission.

General Counsel Kam reported that at the 10/11/17 Commission meeting, the Commission considered staff’s original complaint which addressed payments made to charitable/community organizations. At this time, staff could only determine that 2 of Respondents’ payments (i.e., to the American Heart Association and the American Cancer Society) were donations.  The Commission wanted staff to do further investigation on the payments to the other charitable organizations so the matter was continued to the Commission’s 12/13/17 meeting.  Staff thereafter sent a second letter of inquiry to the nonprofits to identify the line or column in the IRS Form 990 or Form 990-EZ where the payments from Respondents were reported, or if the organization did not file either IRS forms, to identify the specific ledger account in the organization’s accounting system where the payment was recorded.  General Counsel Kam stated that under Hawaii law, all nonprofit organizations must keep accounting records.  He reported that the amended complaint was placed on the agenda of the 12/13/17 Commission meeting at which time the Respondents requested a continuance to discuss settlement and to obtain other documents.  Thus, the matter was continued to today’s meeting.

General Counsel Kam reported that there is one count in the complaint which alleges an excess donation to community/charitable organizations in violation of HRS §11-381(a)(3).  Pursuant to this statute, donations to charitable organizations are limited to “twice the maximum amount that one person may contribute to that candidate pursuant to section 11-357.”

Chair Luke asked how much money would Mayor Arakawa have been allowed to give to community/charitable organizations.  General Counsel Kam stated that Mayor Arakawa’s limit on charitable contributions was $8,000 in an election period.

General Counsel Kam argued that if the Commission accepts the way that Mayor Arakawa reported his expenditures, then it would allow other candidates to disguise their donations by making an agreement with the charitable organizations to call it advertising.  For the 2018 election period, Respondents made $16,532.14 in donations to charitable organizations, thus exceeding the limit by $8,532.14.

Chair Luke asked if the candidate makes an agreement with a nonprofit to say that the candidate’s payment to it is not a donation, and then the nonprofit does not abide by this agreement, would that be a violation?  General Counsel Kam replied that the only relevant inquiry was whether the payment was a donation.  He stated that it is irrelevant as to what the candidate and nonprofit agreed to.  Vice Chair Goodenow commented that he had questions for their attorney in Executive Session to discuss strict liability on this issue.

General Counsel Kam reported that the following 15 payments to 14 nonprofit organizations were found to be donations under the law as indicated by the organization:

• American Heart Association – 11/6/14 for $524;
• American Cancer Society – 8/17/15 for $4,230;
• Church on the Go – 11/25/14 for $500;
• Halau Hula O Keola Alii O Kekai – 5/21/15 for $100;
• Kurt Suzuki Family Foundation – 1/15/16 for $500;
• Rotary Club of Lahaina Sunset – 3/10/15 for $200;
• Southside Boxing Club of Maui, Inc. – 9/14/15 for $1,100;
• Hawaii State Science Olympiad – 2/17/15 for $104.17;
• Ka Hale A Ke Ola Homeless Resources Centers, Inc. – 1/14/15 for $1,000;
• Kiwanis Club of Kahului – 8/17/15 for $250;
• Maui Police Activities League – 4/30/15 for $2,500;
• Maui Sons and Daughters of Nisei Veterans – 3/12/15 for $104.19 (the amount in the complaint read $104.17 which was corrected to $104.19);
• Maui Sons and Daughters of Nisei Veterans – 12/27/16 for $119.80;
• Tri-Isle RC&D – 4/23/16 for $5,000; and
• Maui Adult Day Care Centers – 2/27/15 for $300.

For a total of $16,532.16 (the amount in the complaint read $16,532.14 which was corrected to $16,532.16).

General Counsel Kam stated that the payment to Maui’s Sons and Daughters of the Nisei Veterans on 3/12/15 was listed as $104.17 in the complaint, but should have been listed as $104.19, which would make the total donations given to the organizations to be $16,532.16 (instead of $16,532.14).

General Counsel Kam referenced the IRS guidelines regarding donations to nonprofit organizations and made the following comments:

• Contributions, donations, and gifts are reported on line 1, Part VIII, in Form 990, and on line 1, Part 1, in Form 990-EZ.
• In addition to an outright gift to a charity, a qualified sponsorship payment and the associated acknowledgment of the donor is a donation while the proceeds from the sale of advertising by a charity results in taxable unrelated business income.
• Advertising does not include acknowledgements. The effect of an acknowledgment is the identification of the sponsor rather than the promotion of the sponsor’s products, services, or facilities.  Logos or slogans alone are considered acknowledgements as they do not contain comparative or qualitative descriptions.

General Counsel Kam stated that in a letter dated 7/12/16, Commission staff informed Respondents that if the recipient of Mayor Arakawa’s campaign funds treated the funds as a tax-exempt donation, then staff would likewise treat the expenditure as a donation under HRS §11-381(a)(3).  Further, the letter provided that:  “We do not agree with Mayor Arakawa that candidates can avoid the limitations on donations by simply agreeing with the recipient to call a donation something else.  A donation is a donation.  If we accept Mayor Arakawa’s proposition that a candidate can avoid the statutory spending limitations of HRS §11-381(a)(3) by agreeing with the recipient to call the donation “advertising” when reporting the expenditure to the Commission, then the statutory provision would be meaningless.”

General Counsel Kam provided a sample of the Commission staff’s second letter of inquiry sent to the organizations.  The letter asked what line the payment was reported on the organizations’ Form 990 or Form 990-EZ.  Alternatively, if payment was not reported to the IRS, the Commission asked what ledger account  the payment was attributed to.

Chair Luke asked how many total organizations were investigated.  General Counsel Kam replied that there were 41 organizations.  Vice Chair Goodenow asked about the organizations that did not respond to the Commission staff’s letter.  General Counsel Kam stated that the organizations that did not respond are not included; however, there were 10-12 organizations that the Commission staff agreed with Mayor Arakawa that the payments were directly related to the candidate’s campaign as these organizations reported Mayor Arakawa’s payments as income to the IRS.

General Counsel Kam reported the following responses from the 14 organizations:

• American Heart Association – Standard gift letter dated 1/7/15 that stated that the $1,000 payment was treated as a tax-free donation.
• American Cancer Society – Letter dated 7/12/17 from General Counsel Anita Drummond that stated that the $5,000 payment was a contribution.
• Church on the Go – Letter dated 10/26/17 from President Joseph Pluta that stated that the $500 payment was reported as a donation on line 1 of their Form 990-EZ.
• Halau Hula O Keola Alii O Kekai – Letter dated 11/1/17 from Kumu Hula Iola Balubar that identified the $100 payment as a donation on their tax return.
• Kurt Suzuki Family Foundation – Letter dated 10/26/17 that stated that the $500 payment was reported as a donation on their Form 990.
• Rotary Club of Lahaina Sunset – Letter dated 10/31/17 stated that the $200 payment was recorded as a sponsorship and that the payment appeared to be a donation.
• Southside Boxing Club of Maui – Commission staff was told that the $1,100 payment was a donation.
• Hawaii State Science Olympiad – Email dated 11/30/17 from the President of the organization that confirmed the $104.19 trophy purchased by Respondents was a noncash donation.
• Ka Hale A Ke Ola Homeless Resources Centers, Inc. – Email dated 10/31/17 from the Chief Executive Officer Monique Yamashita that the $1,000 payment was a donation.
• Kiwanis Club of Kahului – Letter dated 11/2/17 that stated that the $250 payment was recorded as a sponsorship, and therefore, a donation.
• Maui Police Activities League – Sergeant Aylett Wallwork, treasurer of Maui Police Activities League, informed staff via phone call on 11/28/17 that the $2,500 payment was reported on Line 1, Part 1, on Form 990-EZ. Therefore, the payment was received as a donation.
• Maui’s Sons and Daughters of the Nisei Veterans – Letter dated 11/8/17 from President Leonard Oka that the $104.19 trophy purchased by Respondents was an in-kind sponsorship, and that they were working with their accountant to amend their 2014 Form 990-EZ to account for this additional sponsorship.
• Maui’s Sons and Daughters of the Nisei Veterans – Same letter as above which stated that the cost of the $119.80 trophy that was reimbursed by Respondents was reported on Line 1 of their 2016 Form 990-EZ and was thus a donation.
• Tri-Isle RC&D – Letter dated 11/16/17 from Executive Director John Tomoso that stated that the $5,000 payment was reported on Line 1f, Part VIII, on their 2016 Form 990, and thus, a donation.
• Maui Adult Day Care Centers – Letter dated 12/1/17 that stated that the $300 payment was reported on Line 1c, Part VIII, on their 2015 Form 990, and thus, a donation.

General Counsel Kam requested the Commission to:  (1) Make a preliminary determination that probable cause exists that Hawaii campaign finance law had been violated pursuant to HRS §11-405(a); (2) Assess a fine in the amount of $1,000 against Respondents and order Respondent Arakawa to use personal funds to pay the fine if Respondent Friends does not have sufficient funds to pay the fine; (3) Order that any and all administrative fines be deposited in the general fund pursuant to HRS §11-410(e); (4) Order that the individual Respondents reimburse Respondent Friends’ campaign account in the amount of $8,532.16 from personal funds as authorized by HRS §11-409; and (5) Order Respondents to amend the appropriate reports to reflect that the 15 expenditures were donations to charitable organizations.

Mr. Minkin referenced the previous case regarding Mayor Arakawa which involved a sponsorship of a softball team.  Chair Luke clarified that the complaint resulted in a (2-2) vote, and thus, a stalemate.  Mr. Minkin agreed.

Mr. Minkin expressed his concerns that the IRS guidelines for nonprofits are not in the State statutes or in the Commission’s rules and regulations.  He argued that this was important because the Commission is asking Respondents to go back and ask a third party how they treat their payment.  Mr. Minkin stated that the purpose of the IRS nonprofit statute is to level the playing field between the for-profit corporations and the nonprofits.  Moreover, it disallows the nonprofits to skate by for something that a for-profit could do.

Mr. Minkin stated that they are here today for advertising versus a donation.  He argued that Commission staff claims that the payments made were for donations and exceeded the limit; however, Respondents’ checks all stated advertising and Mayor Arakawa informed the Commission that he does not give contributions to nonprofits from his campaign, instead he gives personally.  Mr. Minkin stated that everyone agreed that the payments were for advertising (i.e., the checks stated advertising as well as the organizations stated that the payment was for advertising).  He proposed the question, “What if the payments were reported as a donation?”  Mr. Minkin claimed that the campaign would be misreporting and would be subject to sanctions.  He argued that the campaign would be caught in a catch-22 on how the local entity reported after-the-fact.  Mr. Minkin stated that the Commission is now asking Mayor Arakawa’s campaign as well as every other campaign to ask the entity how they will reporting their payments to the IRS.

Mr. Minkin explained the circumstances regarding the payment to the American Cancer Society.  Respondents’ check stated advertising and the local organization stated that the payment was for advertising, but 2 years later, the national organization stated that the payment was not used for advertising.  Mr. Minkin asked the Commission whether they are allowed to rely on what the local organizations tell the campaigns.

Mr. Minkin stated that the IRS rules and regulations were not an appropriate basis for determining campaign spending violations.  He argued that Commission staff seeks sanctions for after-the-fact actions by a third party.  He commented that if the organization did not file taxes, or filed their taxes years later, the campaign committee needs to rely on what they were told the payment was used for.

Mr. Minkin stated that if this is the way that the Commission staff wants to interpret the law, then they should not do it retrospectively.  Mr. Minkin suggested that since the Commission’s website is known to be user-friendly, then it should contain information on the IRS guidelines for committees as well as for nonprofit organizations.

Mr. Minkin distributed a handout to the Commission staff and the Commissioners.

Mr. Minkin stated that the people that get into trouble with the IRS are those that file forms.  Many people in the community do not even file.  Commissioner Shoda asked Mr. Minkin if he told the organizations not to file their forms.  Mr. Minkin replied in the negative and commented that he was not the attorney for these organizations.

Mr. Minkin explained that the entities filed their forms and now the campaign is being tagged for it.  Mr. Minkin asked the Commission to read the handout that was provided since it stated Respondents’ position in more detail.  He asked that the Commission decline the preliminary determination since there was no probable cause, and asked that they instruct Commission staff to go back and do whatever they want to do prospectively.  Mr. Minkin expressed that if this is the way the law is to be interpreted now, then put it on the website and inform all other campaigns.

Mr. Minkin distributed a second handout to Commission staff and the Commissioners which contained the two responses from the Respondents.

Chair Luke asked Mr. Minkin his view on the distinction between directly-related versus donation, instead of using the term “advertising.”

Mayor Arakawa stated that he has been campaigning for a long time.  He stated that he submitted everything to the Commission in a timely manner and that his campaign tried to accurately report their expenditures.  He commented that this issue was not about whether it was reported, but rather what column it was reported in.  Mayor Arakawa stated that at no time since the 1980s has this been an issue.  He clarified that he deliberately separated donations from advertisements and stated that he made donations out of his personal funds because he did not want to exceed the Commission limits on charitable donations.

Mayor Arakawa stated that the nonprofits approach his committee.  Chair Luke asked Mayor Arakawa if the nonprofits approach him to buy advertising.  Mayor Arakawa answered in the affirmative.  Chair Luke stated that when nonprofit organizations approach him, they have never asked to purchase advertising packages.  Chair Luke clarified that he has been asked to sponsor events, but not advertising. Mayor Arakawa stated that he receives hundreds of requests from schools and nonprofits to purchase advertising.

Chair Luke asked Mayor Arakawa what he tells the organizations when they ask him to pay for advertising.  Mayor Arakawa replied that he told them that he would buy advertising from his campaign, but cannot make donations from his campaign.  Instead, the donations would be from his personal account.

Chair Luke asked if the organizations approach Mayor Arakawa personally for advertising.  Mayor Arakawa replied that the organizations approach him personally and his campaign.

Mayor Arakawa stated that he submitted letters from the organizations that stated that the payments were made for advertising.  He emphasized that he had never been told that there needed to be a follow-up with tax laws or IRS forms to see how the payment was reported.  Mayor Arakawa referred to a previous Commission meeting in which the Commission staff sought his campaign to retrieve tax information from the organizations.  Mayor Arakawa stated that the Commission staff asked the organizations twice for their tax information.  Mayor Arakawa mentioned that his wife also contacted the organizations.  The organizations asked his campaign why they needed to provide their tax information, and the campaign told them that it was up to the organizations to provide the tax information or not.  The campaign could not demand it since they do not have the authority.

Chair Luke clarified that at a previous Commission meeting, the Commissioners wanted staff to obtain more information from the nonprofit organizations about how they treated Respondents’ payments.  He stated that nonprofit organizations write donation letters all the time and that it should not have been difficult for them to provide it.  Moreover, he commented that it was reasonable for staff to inquire further.

Mr. Minkin stated that 99% of the letters that were received described Respondents’ payments as advertising. The follow-up was how the payment was reported on their taxes, and at that point, that was when the organizations were getting upset.

Chair Luke responded that when you make a donation, the nonprofit organization will send you a letter.  It could be for advertising, but they could say that an allotted portion of the payment was a tax-deductible donation.  Chair Luke continued that it was reasonable to ask this from the nonprofit organizations.  Mayor Arakawa replied that they were getting accused of interfering with the organizations’ processes. Mayor Arakawa stated that staff brought the accusations up as a charge with legal ramifications.

Mr. Minkin stated that the issue was brought up because in the amended complaint, one of the options was to refer the matter for criminal prosecution.  Mr. Minkin stated that Mayor Arakawa was troubled because the allegations were against his wife.  Mr. Minkin reminded the Commissioners that he was personally contacted by the organizations and was asked how they should respond to the Commission staff’s inquiries.  He replied that he was not their attorney and could not advise them.  Mr. Minkin told the organizations that unless there was a subpoena, they could do whatever they want.

Mayor Arakawa wanted the Commission to know that he has been trying to be upfront with everything that he has been doing.  There was no collusion to try and sneak something through.  Mayor Arakawa stated that this matter was about the ethics regarding accountability of the organizations on how they report after-the-fact.  Mayor Arakawa stated that he had learned in previous business classes that the rule was that when you make an agreement of a contract, that contract is binding.  The two parties agreed that the payment was for advertising, which resulted in a binding contract between the campaign and the organization.  Mayor Arakawa expressed his concern that it is not ethical to be able to perceive in the future what the organization is going to be reporting to the IRS.  Mayor Arakawa stated that over $20,000 has been spent on legal fees, but that this was an ethical matter for him to pursue.

Vice Chair Goodenow asked Mr. Minkin whether it can be agreed that the payments were donations.  Mr. Minkin replied that they would be considered donations after-the-fact.  Mr. Minkin stated that only now the campaign is being penalized.  He stated that there was information now that stated Respondents’ payments were donations, but that was not provided when the report was done.  In the case of the American Cancer Society, the local organizations stated that the payment was used for advertising, the check stated it was used for advertising, but then the national organization stated that the payment was a donation.

Chair Luke commented that the organizations are potentially deceiving both the Commission and the campaigns.

Mayor Arakawa commented that if the Commission rules that the payments were donations, then the Commission would need to investigate all other campaigns.

Associate Director Baldomero reported that of the 14 nonprofit organizations, 8 of them did not receive any payments or items from any other candidate committee during the same period.  There were also 7 other candidate committees that reported their expenditures to the American Heart Association as a charitable donation.

Vice Chair Goodenow stated that at the last meeting the Commission was told that the Respondents and the Commission staff were going to discuss a possible settlement.  Mr. Minkin stated that discussions occurred, but the parties were unable to reach a solution.

Commissioner Markley stated that she is a professional fundraiser and works with many nonprofit organizations.  She apologized that Mayor Arakawa is in his current situation and expressed her appreciation for Mayor Arakawa’s generosity towards nonprofits.  Commissioner Markley stated that often when organizations pursue sponsorships, the organizations will recognize the donor’s support by putting the donor’s name on t-shirts and banners, etc.  She stated that the nonprofit understands that the payment was a donation and that is what it is asking for.  If instead the organization was asking for advertising, then the organization would have to report it as income.  Commissioner Markley suggested an amendment to the rules, instead of investigating all of the organizations one at a time.  She asked if there is any opportunity to look at the wording in what is trying to be enforced.

General Counsel Kam asked if Commissioner Markley meant changing the word donation.  Commissioner Markley replied that the Commission may run into trouble distinguishing between donations, sponsorships, and advertising.  Nonprofits tend to see them as one in the same.  Commissioner Markley expressed her concern that this could result in a lot less donations to nonprofits who are just out in the community trying to do good work.

General Counsel Kam replied that the statute is clear.  He stated that there was never a case that involved so many payments to charitable organizations.  Typically, Commission staff does not investigate a committee that described a payment that is directly-related advertising to a charitable organization unless it is approaching the statutory limit.

Commissioner Markley asked that if the nonprofit is calling it something other than a donation, how do you expect the committee to report the expenditure.  General Counsel Kam replied that it would be the candidate’s responsibility to determine if it was a donation.

Commissioner Shoda stated that when an advertisement is purchased, you receive an invoice describing what you are getting for your payment.  He gave an example in which a payment of $200 is made for 100 brochures that contains your name and logo.  There needs to be documentation as to what is being purchased.  Commissioner Shoda stated that you cannot just send $5,000 and label it as advertising.  If the payment is made to a charitable organization, then some portion of the payment would be a donation.  The invoice should specify what part of the $5,000 is a donation and what part is an expense for advertising.

Mayor Arakawa replied that he provided copies of the advertisements that were purchased.  Mr. Minkin referenced Exhibit 61, page 2 of the amended complaint, which stated, “As the fiscal agent for this parade, we have received your $5,000.00 check that will be used for advertising before and at the parade.  Specifically, the funds will be used:  (1) Affixing of your logo on the Entry Form, a copy of which is attached; (2) Affixing of your logo on all parade/event posters; (3) Affixing of your logo on the parade/event banner, targeted to be hung at 4 strategic locations in Makawao town; (4) Mentioning of the Friends in 3 Press Releases, the 1^st of which is attached; (5) Affixing of your logo on parade/event Marshal T-shirts; (6) For radio and print ads.”  General Counsel Kam explained that the list was a description of the ways the nonprofit organization would acknowledge Respondents’ donation.

General Counsel Kam stated that he had a rebuttal.  He reported that Mayor Arakawa has his own 501(c)(3).  Mayor Arakawa corrected to say that he started the 501(c)(3), but now it is an independent 501(c)(3) in which Mayor Arakawa is not a board member.  General Counsel Kam stated that the organization is called the Mayor Alan Arakawa Community Kokua Fund.

Mr. Minkin asked Chair Luke how this could be considered a rebuttal if a presentation was already prepared with an anticipated response.  General Counsel Kam replied that the rebuttal concerns the American Cancer Society.

General Counsel Kam reported that the Mayor Alan Arakawa Community Kokua Fund had a fundraiser in 2017 which offered sponsorship opportunities.  On their sponsorship form, they sold various tables at different prices.  Mr. Minkin objected since this was a 2017 matter and they were there for matters occurring in 2014 thru 2016.  Mr. Minkin claimed that this was sand bagging and would require a surrebuttal.  He further questioned why this was relevant.

General Counsel Kam stated that the Mayor Alan Arakawa Community Kokua Fund used a standard sponsorship form.  He explained that people were approached with different table sponsorship opportunities of which a certain portion of the payment was tax-deductible.

General Counsel Kam displayed Exhibit 45 which was the American Cancer Society’s Hopefest sponsorship package form.  He explained that when looking at the tables, the American Cancer Society’s fundraiser offers similar things to that of the Mayor Alan Arakawa Community Kokua Fund fundraiser.  He stated that Respondents’ claim that purchasing the sponsorship with the American Cancer Society was advertising, but purchasing the sponsorships at the Mayor Alan Arakawa Kokua Fund would be considered a donation.  He commented that Respondents’ argument is thus not logical.  General Counsel Kam emphasized that sponsorships are donations.

Time:  11:22 a.m.

Vice Chair Goodenow moved to convene to Executive Session pursuant to HRS §92-5(a)(4) to consult with the Commission’s attorneys on questions and issues pertaining to the Commission’s powers, duties, privileges, immunities, and liabilities concerning Docket No. 18-02.  Motion seconded by Commissioner Shoda.  Motion carried (5-0).

Public Session reconvened at 11:42 a.m.

Chair Luke stated that the Commission consulted with their attorneys.  Chair Luke asked if any of the Commissioners had any other questions for staff, attorneys, or the Respondents.

Time:  11:43 a.m.

Vice Chair Goodenow stated that he wanted to move to deliberation.  Vice Chair Goodenow moved to accept the recommendation of staff.  Commissioner Shoda seconded.

Chair Luke stated that now there would be deliberation and there may be potential amendments to the motion.

Vice Chair Goodenow stated that he did not believe that there was any intent to disguise the donations.  He thought it was appropriate that Mayor Arakawa only solicited advertising, absent any other findings.  Vice Chair Goodenow stated that Commission staff cannot just rely on characterizations through self-reporting.  He agreed that the payments were donations.  He stated that there are state tax guidelines and state statutes that characterize what donations are.

Vice Chair Goodenow however stated that he would like to amend the complaint to remove Mayor Arakawa’s wife, Ann Arakawa, from the amended complaint.  He asked General Counsel Kam what statutory basis allows the Commission to include someone that is not a candidate or a treasurer.  Vice Chair Goodenow stated that at a previous meeting there were allegations that Ann Arakawa pressured the organizations.  In his opinion, there was nothing wrong with the Mayor or his staff approaching these people.

Commissioner Shoda asked General Counsel Kam if Commission staff had any objections to removing Ann Arakawa from the complaint.  General Counsel Kam replied that if the Commission is not considering any conduct on the part of Ann Arakawa, then the Commission staff would have no reason to object.

Chair Luke stated that the allegations of what was being said were difficult to prove.  He stated however that if the allegations were true, it was disturbing.

Time:  11:51 a.m.

Vice Chair Goodenow moved to amend the complaint to remove Ann Arakawa from the complaint.  Commissioner Markley seconded.  Motion carried (5-0).

Vice Chair Goodenow questioned the payment to the Rotary Club of Lahaina Sunset, Exhibit 54.  He stated that the letter does not state that the payment was a donation for tax purposes.  Vice Chair Goodenow read the following from Exhibit 54, “We maintained a separate line item in our event budget for cash donors.”  For Vice Chair Goodenow, this was a gray area in considering the $200 payment as a donation.  General Counsel Kam replied that based on the IRS guideline that sponsorships are donations.

Vice Chair Goodenow referenced a letter from the Rotary Club dated 7/22/16 that stated the transaction was not a donation to their organization.  Vice Chair Goodenow suggested that they drop the $200 payment.

Time:  11:51 a.m.

Vice Chair Goodenow moved to remove the $200 payment to Rotary Club of Lahaina Sunset from the complaint.  Commissioner Shoda seconded.  Motion carried (5-0).

Chair Luke introduced Deputy Attorney General Stacie Nakamura from the Tax Division.  She discussed the difference between a donation and unrelated business income.  An acknowledgement would display something such as “mahalo for your support.”  Unrelated business income for advertising would display something like “I have the best product, I am the best at this, I provide the best service, please buy my product.”  She stated that if it was just your name listed, or just your logo, it would be considered an acknowledgement and would be considered a qualified sponsorship which in turn would be considered a donation.

Vice Chair Goodenow asked General Counsel Kam if the complaint would be need to be amended to include the $0.02.  General Counsel Kam asked that the Commission accept his assertion that the $0.02 was a mistake in the complaint.  Executive Director Izumi-Nitao replied that the findings would reflect the corrected amount.  Mr. Minkin stated that as a result of a preliminary determination of probable cause, there would need to be a conclusion of law and that the amount would be taken care of there.  At that time, Respondents would have the opportunity to respond and request a contested case hearing.

Chair Luke reiterated the requested relief to amend the reports, pay a $1,000 fine, and reimburse the campaign in the amount of $8,332.16 (subtracted $200 to eliminate the payment to Rotary Club and added $0.02 error).

Vice Chair Goodenow stated that he is troubled and sympathetic to Mayor Arakawa.  He stated that his uneasiness comes from the legislative policy.  Vice Chair Goodenow claimed that people donate to campaigns to get people elected.  There was discussion at an earlier meeting that people do not give money to candidates to give to charities.  Vice Chair Goodenow believes that people trust the candidate to use the money given to them in the most effective way, and believes that was what Mayor Arakawa was doing.  Vice Chair Goodenow stated that he does not believe that the complaint should be referred to the Attorney General’s office for prosecution.  Vice Chair Goodenow referenced a comment from          Mr. Minkin that the nonprofits made a contract to do advertising; however, the nonprofits violated that contract.  Vice Chair Goodenow agreed with Commission staff’s assessment of a $1,000 fine, rather than $1,000 fine per occurrence.

Commissioner Markley stated that she did not understand the recommendation.  Chair Luke repeated the recommended relief of amending the reports, paying a $1,000 fine, and reimbursing the campaign $8,332.16.  Commissioner Markley asked how the Commission could  impose a fine or require repayment when the nonprofits themselves have said the payment was for advertising.  Executive Director Izumi-Nitao replied that Commission staff is treating this violation as it would any other violation concerning excess charitable donations as set forth in the administrative fine guidelines.  Commissioner Markley indicated that if the Commission votes to approve the staff’s recommendation, then the Commission would be ignoring the letters from the nonprofits that state the payment was for advertising.  General Counsel Kam replied that the Commission would have found that the payments were in fact donations in excess of the statutory limit and would be applying the administrative fine guidelines.

Vice Chair Goodenow stated that if the Commission agrees that the payments were donations, then the Commission has a statutory duty to find any excess must be refunded to the campaign.  He asked Commissioner Markley if she would like to make a motion to waive the fine for mitigating circumstances.

Mr. Minkin stated that by asking Mayor Arakawa and Anthony Arakaki to reimburse the campaign $8,332.16 it would be in violation of how much the committee can receive from an individual.  He argued that they would need to amend federal and state tax returns and amend the reports to change the expenditures from advertising to donations.  Mr. Minkin was concerned that the reimbursement to the campaign from Anthony Arakaki would be an excess contribution.  Associate Director Baldomero clarified that the reimbursement would be considered an “Other Receipt” rather than a contribution.

Vice Chair Goodenow asked Deputy Attorney General Nakamura if a nonprofit would be in trouble if it advertises for a political person.  Deputy Attorney General Nakamura replied that 501(c)(3) organizations, which many of the organizations are, are not allowed do any type of political activity.  Any support for a candidate, opposition of a candidate, or any other activity for a political office, jeopardizes their tax-exempt status with the IRS.  Deputy Attorney General Nakamura stated that the IRS identifies an acknowledgment to be something with the donor’s name or logo.  An advertisement would contain a qualifying statement.  Chair Luke claimed what was purchased was actually an acknowledgment and not an advertisement.

Time:    12:11 p.m.

Chair Luke reminded everyone that there was a motion on the table which had been seconded to make a preliminary determination that probable cause existed that a violation had been committee and to accept the fine and terms of the amended complaint.  A vote was taken and Chair Luke confirmed that the  amended motion passed (5-0).

Mr. Minkin wanted to make sure that Respondents would be receiving the findings of fact by certified mail.  General Counsel Kam confirmed that this would occur. Mr. Minkin commented that this issue would not end here.

Commissioner Markley asked if there could be a motion to mitigate the fine.  Chair Luke replied that the motion had already been voted on.  Commissioner Markley responded that she opposed the motion.  (NOTE:  Thus, the vote earlier taken was amended to 4-1 with Commissioner Markley opposed.)  Commissioner Markley wanted to make a motion to mitigate the fine to $1.  Chair Luke asked Mr. Minkin if the matter could be resolved if the fine was reduced to $1.  Mr. Minkin replied they would still pursue a contested case.

*Consideration, Discussion, Approval, or Update of Commission Legislation/Testimony and/or Other Campaign Finance Related Bills/Resolutions for the 2018 Legislative Session

Time:  12:13 p.m.

General Counsel Kam highlighted the bills that have activity in the 2018 Legislative Session.  He reported the following on Commission bills:

• H.B. 1656/S.B. 2151 → Amends HRS §11-410 by raising the amount of the fine that can be assessed against a Super PAC (that receives at least one contribution of more than $10,000 from one person or has made expenditures of more than $10,000 in aggregate, in an election period) from $1,000 to $5,000 and to permit the fine to be up to three times the amount of the unlawful contribution or expenditure. Also, allows the Commission to order that a fine assessed against a noncandidate committee, or a portion thereof, be paid from the personal funds of the officers of the noncandidate committee.  There was a hearing before the House Judiciary and the committee passed the bill but the effective date was defected.  General Counsel Kam believes that the bill will go to conference committee.

• H.B. 1659/S.B. 2154 → Repeals the requirement that contributions be reported in the organizational report of noncandidate committees. There is no space in the organizational report to list contributions.  The Commission has not required noncandidate committees to report contributions in the organizational report. There was a hearing before the House Judiciary and the committee passed the bill but the effective date was defected.  General Counsel Kam believes that the bill will go to conference committee.

• H.B. 1661/S.B. 2156 → Requires candidates who do not intend to have more than $1,000 in activity to provide notice to the Commission of such intent by June 30 of an election year and to require noncandidate committees who do not intend to have more than $1,000 in activity to provide notice to the Commission of such intent by the 5^th calendar day prior to the due date of the Preliminary Primary Report. There was a hearing before the House Judiciary and the committee passed the bill but the effective date was defected. General Counsel Kam believes that the bill will go to conference committee.

As for other bills, General Counsel Kam reported the following:

• H.B. 2015 → Adds a new section to require newspapers to disclose the aggregate amount spent by a candidate on advertisements with the newspaper in the election year when a newspaper chooses to endorse a candidate. The House Judiciary had a hearing on 2/1/18 that passed the bill with amendments.

• H.B. 2247 → Amends HRS §11-391 to require advertisement disclaimers on any advertisement communicated by digital means or online social media. New bill introduced by legislators which has not received a hearing yet.

• H.B. 2992 → Amends HRS §11-302 to exclude signs, banners, and bumper stickers to the definition of “advertisement” along with sundry items. The Commission opposed this bill and were asked to produce more comments at the Senate Judiciary Hearing on 2/2/18.  Further comments were provided on 2/12/18.

Report from the Executive Director
Report on Compliance of Filing Timely Disclosure Reports
Time:  12:19 p.m.

Executive Director Izumi-Nitao reported that the Supplemental Report covering the reporting period of 7/1/17 through 12/31/17 was due on 1/31/18 for all candidate and noncandidate committees registered with the Commission.

• 321 candidate committees were required to file of which 290 filed on time (90%), 31 did not file (10%). To date, only 4 have not filed (which represent committees that were previously referred to the AG-CRD for collections).
• 252 noncandidate committees were required to file of which 232 filed on time (92%), 20 did not file (18%). To date, only 6 have not filed (5 of which represent committees that were referred to AG-CRD for collections).

Executive Director Izumi-Nitao reported that as for the Commission orders that were previously referred to the Attorney General – Civil Recoveries Division (“AG-CRD”), Junior Mataafa had a hearing at the First Circuit Court on 12/30/17 and the petition was granted.

Report on the CSC January 2018 Newsletter
Time:  12:21 p.m.

Executive Director Izumi-Nitao reported that the January 2018 Newsletter was published on 1/11/18.

Update of Credit Card Fine Payments
Time:  12:22 p.m.

Executive Director Izumi-Nitao reported that the Commission had successfully processed 3 fine payments.  The total amount of the fines collected through PayPal was $460.32 and the PayPal processing fee was $14.68.

Update on Wiki Meetings
Time:  12:23 p.m.

Executive Director Izumi-Nitao reported that there has been only one Wiki Meeting requested which was on 2/8/18 with the treasurer of a new OHA candidate.

Discussion of Upcoming Training
Time:  12:23 p.m.

Executive Director Izumi-Nitao reported that there will be an OIP Sunshine Law Training with State Ethics on 4/11/18, and an HRS Chapter 91 Contested Case Training on 5/9/18 at 1:00 p.m. with DCCA Hearings Officer Craig Uyehara with the State Ethics and Honolulu Ethics Commissions.

EXECUTIVE SESSION
Chair Luke asked for a motion to convene Executive Session to (1) Consider and approve Executive Session minutes from the Commission meeting on 12/13/17, and (2) Pursuant to HRS §92-5(a)(4) to consult with attorney regarding payment of attorneys’ fees in Yamada et al. v. Shoda et al.

Time:  12:25 p.m.

Commission Shoda moved to convene to Executive Session for the aforementioned reasons.  Motion seconded by Vice Chair Goodenow.  Motion carried (5-0).

Public Session reconvened at 12:32 p.m.

Vice Chair Goodenow moved to adjourn the meeting.  Motion seconded by Commissioner Shoda.  Motion carried (5-0).  Meeting adjourned at 12:33 p.m.

Next Meeting:
Scheduled for Wednesday, March 7, 2018.